This is really weird. When I chainload Windows 98 with GRUB, the operating system becomes very unhappy. Although it boots and seems to run just fine, I get a pop-up saying that the MBR has been modified, my disk controllers aren't working properly, and all of my disks are operating in compatibility mode.

This is purely temporary, as swapping the Windows 98 disk back to primary in the BIOS has everything loading properly.

You are trying to use the NT multi-boot in a way that AFAIK it was never designed to be used. Again if you install W98 onto C: then install WXP onto D: it should all "just work".

This is what I did on the system below on 2019-11-08 @ 14:45:46 and since then I have been able to boot into any of the installed OSes.

At the moment it does not have W98 on C:, but it used to and I have other systems that have. I decided to show you the setup on this system as it does have two physical disks rather then one.

Should W98 totally screw up C: then:

1) wipe C:
2) Install W98
3) Boot the WXP CD and do a boot repair.

I also recommend keeping a backup of all the files that are in C:\ which on the above system are in C:\BOOT\ and also in D:\BOOT\

When you try to start Win98 from the NTLDR boot menu option, the Win98 boot sector code has no way of knowing that it needs to load from D:\ instead of C:\, that's why it fails. The Win98 boot code would need to be patched to use the second HDD for its INT 0x13 calls.

edit: changing the byte at offset 0x40 from 0x80 to 0x81, inside your BOOTSECT.DOS that you copied to your C:\ (NTFS) might do the trick...

This seems to make sense. It also explains why, even when using an alternative bootloader like GRUB to chainload it, there are still problems with disk access.